Suppose you purchase a $30-$year, $$zero$-$coupon bond with a yield to maturity of $5\mathrm{.}7\%.$ You hold the bond for five years before selling it$.$

a$.$ If the$$ bond's yield to maturity is $5\mathrm{.}7\%$ when you sell$$ it$,$ what is the annualized rate of return of your$$ investment?

b$.$ If the$$ bond's yield to maturity is $6\mathrm{.}7\%$ when you sell$$ it$,$ what is the annualized rate of return of your$$ investment?

c$.$ If the$$ bond's yield to maturity is $4\mathrm{.}7\%$ when you sell$$ it$,$ what is the annualized rate of return of your$$ investment?

d$.$ Even if a bond has no chance of$$ default, is your investment risk free if you plan to sell it before it$$ matures? Explain.

Question content area bottom

Part $1$

a$.$ If the$$ bond's yield to maturity is $5\mathrm{.}7\%$ when you sell$$ it$,$ what is the annualized rate of return of your$$ investment?

The annualized rate of return of your investment is

$$

enter your response here$\%.($Round to two decimal$$ places.$)$

Part $2$

b$.$ If the$$ bond's yield to maturity is $6\mathrm{.}7\%$ when you sell$$ it$,$ what is the annualized rate of return of your$$ investment?

The annualized rate of return of your investment is

$$

enter your response here$\%.($Round to two decimal$$ places.$)$

Part $3$

c$.$ If the$$ bond's yield to maturity is $4\mathrm{.}7\%$ when you sell$$ it$,$ what is the annualized rate of return of your$$ investment?

The annualized rate of return of your investment is

$$

enter your response here$\%.($Round to two decimal$$ places.$)$

Part $4$

d$.$ Even if a bond has no chance of$$ default, is your investment risk free if you plan to sell it before it$$ matures? Explain.$($Select the best choice$$ below.$)$

the best choice$$ below.$)$

A$.$

There is always a chance of$$ default, so every bond has risk.

B$.$

Even though the yield to maturity$$ changes, if there is no chance of$$ default, then the bond is risk free.

C$.$

If there is no chance of$$ default, the investment is risk free no matter when you sell it$.$

D$.$

Even without$$ default, if you sell prior to$$ maturity, you are exposed to risk that the YTM may change.